Powell ‘Big Step’ Lee Chang-yong ‘0.25 maintenance, no capital outflow’

While Fed Chairman Powell predicted a 'big step' rate hike of 0.75% consecutively, BOK Governor Chang-yong Lee maintained the position of 'maintaining a 0.25% hike' and 'no foreign currency outflows in an interest rate reversal'.
At the annual International Economic Symposium attended by President Lee, Chairman Jerome Powell said on the 26th that "the Fed is moving its policy stance consciously constrained enough to bring inflation back to 2%." History advises.”
On the 25th before leaving for an international conference, Governor Lee said, "If interest rates are raised in the US in September, it will lead to a bigger reversal." Capital outflow and exchange rate movements are not so mechanically related.”
"This remark is short, but the message will be straight-forward," Powell said in an eight-minute speech. .
“Compared to 1997 or 2008, Korea is a creditor country, so the current situation is not only where the Korean exchange rate is depreciating, but also moves with the exchange rate of other major countries,” said Governor Lee. "I'm more concerned and not too concerned about what's ahead," he said for a long time, saying his 'preference for low interest rates'.

 Chairman Powell said the Fed did not act decisively in the 1970s, which caused the inflation to continue to rise, saying inflation 40 years ago. The current Fed state's three lessons are: "The Fed has a responsibility to manage inflation, inflation expectations are important, and we need to keep raising rates until we do it."

 “Chairman Powell’s remarks at Jackson Hall, so how will the US raise interest rates, whether there is a possibility of a US recession, and how will China’s recent stimulus policies affect Europe? “There is a lot of uncertainty about what will happen to electricity prices this winter,” he said. “However, for the time being, the basic principle is to raise the price by 25 bps.” 

Governor Lee continued, “The current situation is not only the depreciation of the Korean exchange rate, but also the exchange rate of other major countries. “Compared to 1997 or 2008, Korea is a creditor country, so we are more concerned about prices due to exchange rate rises than liquidity risks or credit risks,” he said.
"We will continue to raise interest rates in a way that causes some pain," Powell said. .
“The BOK is not independent of the Fed,” Lee said. Therefore, it is difficult to say whether or not I can make a soft landing because the BOK has to respond to external shocks no matter what measures it takes. The Bank of Korea presented its goal as 'management of expected inflation'.
Regarding the inflation target of 2%, Governor Lee said, “The BOK is not aiming to set an inflation target every year, but anchoring it while setting a reference point in the mid- to long-term. The mid- to long-term inflation expectations are well established at 2% because we are targeting inflation, and it is very important to keep it going. “I am grateful to the government in that fiscal policy is consistent in view of the price-centered policy stance,” he said.
The Bank of Korea raised the base interest rate by 0.25% on the 25th, bringing the Korean interest rate and the upper end of the US policy rate to 2.5%.
As Federal Reserve Chairman Jerome Powell announced an additional giant step on the 26th, the possibility of a US-Korea interest rate inversion inverted by up to 0.75 percentage points increased immediately after the September FOMC meeting.
If Governor Lee raises the base rate to 3% by the end of the year and the US Federal Reserve further raises it in November and December to the maximum of 4% (based on the above), the inversion of the interest rate between Korea and the US will be a 1%p gap.

At a press conference held by the Monetary Policy Committee on the same day, Governor Lee said, “I came from a low IMF.” When asked about the risk of capital outflow or the possibility of a further increase in the exchange rate due to the inversion of the Korea-US interest rate in September, Lee said, “The IMF (omit) standard for foreign exchange reserves of 150% should be for emerging countries. If you say you want to build up your foreign exchange reserves up to 150% based on the IMF, it will cost you a lot, but the IMF will come and tell you not to do it,” he said, referring to two A4 sheets of paper.